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E.D.N.C.: Travel Expenses And Costs Of Work Materials (Not General Materials) As Well As Housing Costs Constituted Illegal Deductions To H-2B Visa’d Workers Pay
Garcia v. Frog Island Seafood, Inc.
This lawsuit arises from Defendants’ alleged underpayment of wages and record-keeping violations during Plaintiffs’ employment with Defendants. Plaintiffs are citizens of Mexico who were admitted as temporary foreign workers under the H-2B provisions of the Immigration and Nationality Act, 8 U.S.C. § 1101(a)(15)(H)(ii)(b), to work in Defendants’ seafood processing plant as “crab pickers.” During 2004-2006, Defendants sought permission to bring Mexican nationals to work in their seafood processing plant by filing annually an Application for Alien Employment Certification, Form ETA 750A (“Clearance Orders”) with the United States DOL. Each Clearance Order set forth the number of workers requested by Defendants, the period of employment, the type of work and rate of pay being offered by Defendants. Id. The DOL approved the terms of work described in Defendants’ Clearance Orders, and granted their request for H-2B visas to allow Plaintiffs to fill the jobs described in those orders.
The relevant facts were that, “[e]ach of the plaintiffs and putative members of the FLSA and NCWHA plaintiff classes paid his or her own transportation, visa, passport and border crossing costs-expenses not reimbursed by Defendants. Defendants required Plaintiffs to use knives while performing certain tasks in the course of Plaintiffs’ employment with Defendants. Defendants provided Plaintiffs with the knives at no cost at the beginning of the season; however, Plaintiffs were advised that replacement knives would be deducted from their wages. Such deductions were made without obtaining Plaintiffs’ written authorizations. While employed by Defendants, Plaintiffs rented housing provided by Defendant Frog Island Seafood (“FIS”). Defendant FIS did not register the housing with the NCDOL prior to furnishing it to Plaintiffs. Due to the unpredictability of crab supply, Plaintiffs worked variable hours each week. Id. at 15.
Plaintiffs’ Amended Complaint sets forth three causes of action pursuant to the FLSA, the NCWHA and North Carolina contract law. First, Plaintiffs assert an FLSA claim with a proposed opt-in plaintiff class under 29 U.S.C. § 216(b), alleging violations of the federal minimum wage provision by (1) not reimbursing Plaintiffs for transportation, passport, visa and border crossing fees in the first workweek, which effectively brought Plaintiffs’ first week’s wages below the federal minimum wage; (2) deducting the costs of replacement knives from Plaintiffs’ pay and requiring Plaintiffs to purchase items required for work, to the extent these deductions and purchases reduced wages below the minimum wage; and (3) charging rent for housing that (a) exceeded the actual cost and included a profit to Defendants, (b) resulted in a reduction of the wages paid to Plaintiffs to an amount or rate below the minium wage; and (c) violated the North Carolina Migrant Housing Act (“NCMHA”).
Plaintiffs moved for partial summary judgment as to Defendants’ liability on the following claims; (1) violation of the FLSA for (a) failing to reimburse Plaintiffs for pre-employment expenses (referred to as de facto wage deductions); (b) deducting the costs of knives from Plaintiffs’ wages to the extent such costs brought Plaintiffs’ wages below the minimum wage; (c) failing to reimburse Plaintiffs for uniform expenses (e.g., boots) to the extent these expenses reduced Plaintiffs’ wages below the minimum wage (d) collecting rent for housing that violated the NCMHA; (2) violation of the NCWHA for (a) failing to reimburse Plaintiffs for de facto wage deductions and (b) failing to obtain Plaintiffs’ written authorizations prior to deducting the costs of knives from Plaintiffs’ wages; and (3) violation of the terms of the Clearance Order “contracts.” The Court granted Plaitniffs’ Motion in part and denied it in part, taking each issue separately.
“1. Defacto wage deductions for transportation and pre-employment expenses
Plaintiffs contend they are entitled to reimbursement of their pre-employment expenses (transportation, visa, passport and border crossing costs), because these expenses operated as de facto deductions from Plaintiffs’ first week’s wages and violated the FLSA and the NCWHA to the extent these deductions reduced their wages below the minimum wage and promised wage, respectively. See Pls .’ Mem. at 14-18, 21; see also id., Joint Stipulations ¶ [DE-27 .2], (“Jt.Stipulations”), Ex. 1 (stipulating that if the amount each named plaintiff paid for said expenses is subtracted from his or her first week’s wages in 2005 and 2006, each named plaintiff earned less than the minimum wage for that workweek).
Under the FLSA, an employer is required to pay each employee wages at or above the minimum wage rate each workweek, see29 U.S.C. § 206, and such wages must be paid “finally and unconditionally or ‘free and clear.’ ” 20 C.F.R. § 531.35. The FLSA defines “wage” to include both cash wages and the reasonable cost of providing “board, lodging, or other facilities;” thus, an employer may count these costs toward satisfying its minimum wage obligations. 29 U.S.C. § 203(m); see also De Luna-Guerrero v. N.C. Grower’s Ass’n, 338 F.Supp.2d 649, 656 (E.D.N.C.2004). “In other words, when the employer pays for ‘board, lodging, or other facilities,’ it may add the costs of those facilities to the cash wage for purposes of complying with the FLSA minium (sic).” Rivera v. Brickman Group, Ltd., No. 05-1518, 2008 U.S. Dist. LEXIS 1167, at *26, 2008 WL 81570, at *7 (E.D.Pa. Jan. 7, 2008). An employer may not deduct from employee wages the cost of facilities which primarily benefit the employer if such deductions drive wages below the minimum wage. See29 C.F.R. § 531.36(b). Moreover, an employer cannot avoid this rule “by simply requiring employees to make such purchases on their own, either in advance of or during the employment.” See Arriaga, 305 F.3d at 1236 (citing 20 C.F.R. § 531.35).
Plaintiffs rely on Arriaga, which held that H-2A employers must reimburse H-2A workers for their transportation, visa and recruitment expenses, see Arriaga, 305 F.3d at 1242; see also De Luna-Guerrero, 338 F.Supp.2d at 656 (same as to H-2A workers’ transportation and visa expenses), and the district court cases which extended Arriaga to the H-2B context, see, e . g., Rosales v. Hispanic Employee Leasing Program, LLC, No. 1:06-CV-877, 2008 U.S. Dist. LEXIS 9756, at *3, 2008 WL 363479, at *1 (W.D.Mich. Feb. 11, 2008), for the proposition that the FLSA obligates H-2B employers to reimburse guest workers for their transportation, border crossing, visa and passport expenses. See Pls.’ Mem. at 14. Apparently in reliance on the De Luna-Guerrero holding as to the transportation and visa expenses incurred by H-2A workers, Defendants conceded liability as to these same expenses incurred by Plaintiffs, although both parties acknowledge questions of fact remain as to damages.
Subsequent to the filing of the parties’ motions in this case, however, the USDOL issued a December 2008 interpretation stating inter alia that Arriaga was wrongly decided and the FLSA and its implementing regulations did not require H-2B employers to reimburse guest workers for relocation expenses. SeeLabor Certification Process and Employment for H-2B and Other Technical Changes, 73 Fed.Reg. 78020, 78039-41 (Dec. 19, 2008) (explaining “an H-2B worker’s payment of his … relocation [i.e., transportation] expenses does not constitute a ‘kick-back’ to the H-2B employer within the meaning of 29 CFR 531.35,” and “Arriaga and the district courts that followed its reasoning in the H-2B context misconstrued the [DOL’s] regulations and are wrongly decided”). On March 26, 2009, the DOL published a Notice wherein the “DOL with [drew] the FLSA [December 2008] interpretation at …73 Fed.Reg. 78039-41 for further consideration….”Withdrawal of Interpretation of the Fair Labor Standards Act Concerning Relocation Expenses Incurred by H-2A and H-2B Workers, 74 Fed.Reg. 13261, 13262 (Mar. 26, 2009). The now-withdrawn section of the December 2008 interpretation contained the DOL’s opinion that the FLSA and its implementing regulations did not require H-2B employers to reimburse guest workers for relocation expenses, even when such costs result in the workers being paid less than minimum wage. See73 Fed.Reg. 78039-41.
Given the time that has transpired since the filing of the motions by the parties, this court, while aware the interpretation was withdrawn simply for “further consideration,” id. at 13262, is unwilling to allow the case to remain idle until the DOL decides whether to adopt the withdrawn interpretation. Accordingly, finding the Arriaga and De-Luna rationale persuasive in the H-2B context, this court finds the transportation costs incurred by Plaintiffs operated as de facto deductions and that Defendants are liable to the extent these deductions drove Plaintiffs’ first week’s wages below the statutory minimum. The court considers border crossing expenses to be part of a worker’s transportation expense as border crossing expenses are analogous to paying a toll road fee.
Turning to the visa and passport expenses incurred by Plaintiffs, caselaw supports Plaintiffs’ argument that these expenses are “for the primary benefit and convenience” of Defendants and thus are not “other facilities” that can be counted as wage credits pursuant to 29 U.S.C. § 203(m).See, e.g., Rosales, 2008 U.S. Dist. LEXIS 9756, at *3, 2008 WL 363479, at * 1;
Morales-Arcadio v. Shannon Produce Farms, Inc., No. 605CV062, 2007 U.S. Dist. LEXIS 51950, at *50, 2007 WL 2106188, at *17 (S.D.Ga. July 18, 2007); Avila-Gonzalez v. Barajas, No. 2:04-cv-567-FtM-33DNF2006, U.S. Dist. LEXIS 9727, at *10, 2006 WL 643297, at *3 (M.D.Fla. Mar. 2, 2006); but compare Rivera v. Brickman Group, Ltd., No. 05-1518, 2008 U.S. Dist. LEXIS 1167, at *26, 2008 WL 81570, at *7 (E.D.Pa. Jan. 7, 2008) (holding visa expenses should be reimbursed but not passport expenses). The DOL’s March 2009 Notice, while focusing specifically on relocation expenses (also described as “inbound travel expenses”), arguably provides further support of Plaintiffs’ position. In particular, the DOL states that its interpretation of the FLSA “concerns important issues as to whether various pre-employment expenses incurred by workers lawfully may result in workers’ weekly wages being reduced below the minimum wage.”74 Fed.Reg. 13261, 13262 (emphasis added).
Nevertheless, the recently amended federal regulations applicable to the H-2B temporary labor certification process provide that H-2B employers are “not prohibit[ed]… from receiving reimbursement for costs that are the responsibility of the worker, such as government required passport or visa fees.” 20 CF.R. § 655.22(g)(2) (emphasis added). Given the DOL’s regulations speak directly to the issue of passport and visa expenses, the court respectfully disagrees with caselaw finding otherwise. Therefore, as to reimbursement of pre-employment expenses, Plaintiffs’ Motion for Partial Summary Judgment is ALLOWED in part and DENIED in part. Specifically, Defendants are liable for reimbursement of Plaintiffs’ transportation and border crossing expenses as a matter of law to the extent these expenses reduced Plaintiffs’ first week’s wages below the minimum wage. However, as a matter of law, Defendants are not liable for the reimbursement of Plaintiffs’ passport and visa expenses.
Plaintiffs allege that their boot expenses, a required work item, operated as de facto wage deductions and violated the FLSA and NCWHA FN9 to the extent these deductions reduced Plaintiffs’ wages below the minimum wage and promised wage, respectively, in any given workweek. Pls.’ Mem. at 20. Plaintiffs contend further that Defendants are liable under (1) the FLSA for actual deductions of the cost of replacement knives from Plaintiffs’ wages to the extent those deductions reduced wages below the minimum wage; and (2) the NCWHA for failing to obtain Plaintiffs’ written authorizations prior to deducting the costs of replacement knives from Plaintiffs’ wages. Id.
If an employer requires an employee to purchase an item which is “specifically required for the performance of the employer’s particular work, there would be a violation of the [FLSA] in any workweek when the cost of such [item] purchased by the employee cuts into the minimum … wages required to be paid him under the [FLSA].”29 C.F.R. § 531.35; see also29 C.F.R. § 531.32(c) (explaining the cost to the employer of purchasing items, such as uniforms, are primarily for the benefit or convenience of the employer and may not therefore be included in computing wages); 13 N .C.A.C. § 12.0301(d) (explaining that under the NCWHA, “[i]tems which are primarily for the benefit of the employer and which will not be computed as wages include … uniforms, where the business requires the employee to wear a unique or customized uniform). In this case, Defendants acknowledge that Plaintiffs were required to wear rubber boots, which Plaintiffs bore the responsibility of purchasing. However, Defendants contend Plaintiffs failed to establish that “any such deductions ever reduced their wages below minimum wage.”Defs.’ Resp. at 11-12 [DE-37]. Indeed, Plaintiffs supply no evidence indicating that boot expenses reduced Plaintiffs’ wages below the minimum wage in contravention of the FLSA or the promised wage in contravention of the NCWHA. In fact, Plaintiffs state only that their purchase of boots operated as de facto deductions. See Pls.’ Mem. at 21. Accordingly, as to reimbursement for the cost of boots, Plaintiff’s motion for partial summary judgment is DENIED.
Generally, the costs an employer incurs purchasing and providing tools of trade, such as the knives in this case, may not be included in computing wages, since such items are “primarily for the benefit or convenience of the employer….”20 C.F.R. § 531.32(c). Nevertheless, deductions for the costs of such items “may … be made … if the employee … received the required minimum wages in cash free and clear; but to the extent they reduce the wages of the employee in any such workweek below the minimum required by the [FLSA], they are illegal.”29 C.F.R. § 531.36(b). Defendants provided Plaintiffs with knives at no cost at the beginning of the season; however, Plaintiffs were advised that replacement knives would be deducted from their wages. Defendants admit requiring Plaintiffs to use certain knives for crab picking, and making nine dollar deductions from Plaintiffs’ pay for replacement knives. However, Defendants contend the nine dollar deductions did not reduce Plaintiffs’ wages below the required minimum and fault Plaintiffs for failing to prove that such deductions “were a daily or even a weekly event.”
Despite Defendants’ contention to the contrary, liability under the FLSA is not dependent on any specified frequency of deductions. Rather, compliance with the FLSA is measured by the workweek, see29 C.F.R. § 776.4; thus, the issue is whether any deduction occurring during a particular workweek reduced a worker’s wages for that workweek below the minimum wage. A review of Defendants’ payroll records reveals instances in which the nine-dollar deduction for the cost of a replacement knife during a particular week did reduce a worker’s wages for that week below the minimum wage. For example, during the week of May 19, 2005, Plaintiff Mercedalia Hernandez Garcia (“Mercedalia”) worked 37.53 hours at a rate of $5 .17 per hour, grossing $194.03. After a nine dollar deduction for the cost of the replacement knife, Mercedalia’s wages were reduced to $185.03 ($194.03-$9.00), which equates to an hourly rate of $4.93 ($185.03/37.53 hours). Accordingly, Defendants must reimburse Plaintiffs up to the point that the minimum wage is met, and Plaintiff’s motion for summary judgment as to Defendants’ liability regarding replacement knives is ALLOWED.
3. Housing costs
Plaintiffs contend that Defendants are not entitled to claim the costs of any housing provided to Plaintiffs toward the minimum wage requirements under the FLSA because the housing was furnished in violation of the NCMHA. In particular, Plaintiffs contend Defendants were not properly authorized to house H-2B workers as a result of Defendants’ technical, as opposed to substantive, violation of the NCMHA.
If housing is “customarily furnished” by the H-2B employer as a part of wages, then the cost to the employer of furnishing an employee with housing can be included in determining the employer’s compliance with the minimum wage requirement promulgated under the FLSA. 29 U.S.C. § 203(m); see also29 C.F.R. § 531.31 (defining “customarily furnished”). However, housing is not considered “customarily furnished” when it is furnished in violation of federal, state or local law. 29 C.F.R. § 531.31 (emphasis added). Pursuant to the NCMHA, migrant housing shall be inspected for compliance with federal and state law prior to occupancy. SeeN.C. Gen.Stat. § 95-226. In this case, Defendants admit to a technical violation of this state law in that they failed to register the H-2B workers’ housing with the NCDOL, and failed to have the housing inspected prior to Plaintiffs’ occupancy. As a result of Defendants’ violation of state law, Plaintiffs contend housing provided by Defendants cannot be considered an item “customarily furnished” under the FLSA. Accordingly, Plaintiffs maintain that the cost to Defendants of furnishing housing cannot be credited toward Defendants’ minimum wage requirements.
After reviewing applicable case law the Court explained, “Plaintiffs concede “there was no finding in this case that the housing rented to [them] was ‘substandard,’ ” but contend any violation of federal, state or local law prohibits Defendants from legally deducting the cost of housing from their wages. Pls.’ Reply at 9 [DE-45] (citing Strong v. Williams, No. 78-124-Civ-TG, 1980 U.S. Dist. LEXIS 14185, 1980 WL 8134 (M.D.Fla. Apr. 22, 1980), Caro-Galvan v. Curtis Richardson, Inc., 993 F.2d 1500 (11th Cir.1993) and Chellen v. John Pickle Co., 446 F.Supp.2d 1247 (N.D.Okla.2006)). Upon review of the cases cited above by Plaintiffs, the court finds that only Strong supports Plaintiffs’ position. In Strong, the court found that an employer had rented housing to a migrant farm worker while not authorized to do so under federal law. Strong, 1980 U.S. Dist. LEXIS 14185, at * 13. Accordingly, the court held deductions from the worker’s wages for rent were unlawful and thus could not count as wages. Id.; see also Soler, 768 F.Supp. at 466 (describing employer’s argument that “substantial compliance” with state law barred the application of 29 C.F.R. 531.31 as “unfounded” as the regulation “explicitly provides that housing deductions are not permitted for ‘facilities furnished in violation of any Federal, State, or local law’ “). Given the explicit directive of 29 C.F.R. § 531.31 and Defendants’ admitted violation thereof, Plaintiffs’ motion for summary judgment as to Defendants’ liability is ALLOWED.”
Thus the Court 1. The court granted Plaintiffs’ motion as to Defendants’ liability (a) under the FLSA and NCWHA for reimbursement of transportation and border crossing expenses to the extent these expenses reduced Plaintiffs’ first week’s wages below the minimum wage and promised wage, respectively; (b) under the FLSA for actual deductions of the costs of replacement knives from Plaintiffs’ wages to the extent these deductions reduced Plaintiffs’ wages below the minimum wage; (c) under the NCWHA for deducting the costs of replacement knives without written authorization in violation of N.C .G.S. § 95-25.8; and (d) under the FLSA for crediting housing costs toward their minimum wage obligations. Accordingly, Plaintiffs’ request for relief in the form of actual damages remains viable and denied Plaintiffs’ motion as to (a) Defendants’ liability under the FLSA and NCWHA for reimbursement of passport, visa and boot expenses; (b) relief in the form of liquidated damages as to all violations of the FLSA and NCWHA; (c) any claim for willful violations of the FLSA; and (d) Defendants’ liability under the North Carolina common law contract claim, dismissing the latter claims.